In the last year, America (and the world) has witnessed an unprecedented decline in demand by a few percent as a result of the global economic downturn. While America’s housing bubble played a major part in starting the global domino catastopcrapcade, oil prices also caused major consumption cutbacks in other areas once Americans began paying over $4.00+ a gallon in May 2008. (coincidently this also led to a major decline marketshare purchase of gas guzzlers, which has since abated since oil prices are back down below $2.50 – People are so short-sighted and/or stupid).

Anywho, one important question to ponder is what will be the near future prices of gasoline and has this recession changed projections of future prices…

Well this handy dandy chart I stole from Infectious Greed (HT Paul) gives some illustration.

For those less chart savvy, the above provides three different senerios as to the severity of the recession and the resulting less demand for oil. It must be noted that while the Western world is using less oil, this is not true for Asia (China will likely increase demand 5% this year, as opposed to 12% last year). Global demand will likely grow as a result of growth in developing countries.

If you notice that the X-axis of this graph begins at the point where oil demand exceeded supply…the result was rampant speculation and increase in prices (see chart below, the point is the first spike in the green line)..

The Green line is the price per barrel. To adjust this to the price of gas let’s go to this little nugget of within info from the Energy Information Agency

So let’s just make simple. Currently Light crude is trading at $63 and price at the pump is around $2.50 nationally…

63/2.5 = future oil price projection/x

So if we put all the charts together what could we get. Well on the first graph if we take the middle point of the middle senerio (severe economic downturn) we find supply hitting demand in about May 2011. Now if we plug that the projected price of oil into our other formula for that date we get this…

63/2.5 = 125/x

x= $4.96 per gallon.

THE SAD IRONY IS THAT THE LESS SEVERE OUR CURRENT RECESSION IS THE QUICKER IT WILL LEAD TO HIGH GAS PRICES AGAIN.

I would start seriously thinking about how you use energy now and make the necessary lifestyle changes that will prevent you from having to cope with high energy costs.

Nearly 3 trillion in consumer debt and then the bubble popped. Without any precedents, I have little insight as to the effects of this, except my own intuition and that intuition suggests that when TCCO retreats back to 2 trillion, it will trigger a zombie apocolypse (see photo below for survival tips).

Simon Johnson presents an excellent article in the May 2009 edition of the Atlantic that really sticks a dagger into the global banking corporations. As a chief economist for the IMF in last last few years, he offers a unique perspective on how the U.S. economy is currently is functioning. Spoiler alert; He claims there is a Financial/Governmental Complex that pulls the strings and will seek to maintain their power structure at the expense of average tax payers.

The dude on the $20 had a lot to say about large financial institutions back in the early 19th century. Much can still ring true today.

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

The G20 meeting begins this Thrusday in London. This should be a meeting for the history books. Protests and arrests have already begun. On a side note the G20 nations are said to be signing an agreement not to devalue their currencies. I would be shocked in a few years if this is still the case.

FTA: “Home sales will turn around by midyear and home prices will begin recovering by the end of this year after bottoming out at 35 percent of their value from peak to trough. Home prices won’t return to their values of a few years ago during the boom, but will recover from current lows, he said”

This is not the case. The only senerio I can envision where aggregated home prices only drop by 35% requires a boost of inflation, a false reality of wealth. Please refer to chart below.

Housing prices will need to be cut at least in half from inflation adjusted national peak values before they are back in line with household incomes. That’s not all, there is a demographic factor. The baby boomers who own most of these houses out-number their children who are poorer. Gen Y and X simply do not have the means to purchase these houses, even before the bubble.